How is *new* money put into economy?

I don%26#039;t mean how it%26#039;s printed, but rather how the money is distributed into the economy. There is a lot more money in circulation today, 2007, then in 1950 for example. There are a lot more goods out there, so there needs to be more money to exchange for those goods.

Someone told me it deals with bank loans and interest rates. When the bank loans someone money, they only lend 10% of their money in reserve (bank%26#039;s money %26amp; customer savings accounts), and the other 90% of the loaned money is created out of thin air. Is this true, or partially true?

Seems like the bank makes out, since they are being paid back money that they didn%26#039;t even borrow out of their own pocket.

How is *new* money put into economy?loan company

The USA has millions of people that for some reason or another have to borrow money.

When the %26quot;FED%26quot; sets the %26quot;Prime%26quot; lending rate, that means the 22 financial institutions that the FED deals with can borrow money from the FED @ that interest rate.

These 22 institutions hold the %26quot;paper%26quot; on countless American loans. These paper { I.O U.s} acts as collateral for these institutions to borrow from the FED and exchange their newly created I.O.U. to the FED for the amount they want to borrow.

The borrowed FED money is then fed into the American banking industry in the same way, but at a higher interest rate than prime.

If some of the loans in the country go into default whoever is holding the I.O.U. notes suffers because their asset base diminishes, and they cannot borrow or lend as much. Sometimes this results in another bank buying out the distressed bank.

All the way up the banking ladder the banks make money from the borrowers by charging interest.

So in a sense yes, the FED creates dollars and sells them to the 22 banks, in exchange for promissory notes. If the U.S. Treasury needs money for gvt. expenses they sell a T-bill {another I.O.U.} to the FED in exchange for dollars.

The Treasury owes about 9 trillion in debt to the FED.

Now do you understand why Ron Paul wants to abolish the privately owned FED?

How is *new* money put into economy?

loan

Since the population of the globe has doubled since the 50s, it%26#039;s useful to have more money circulating, don%26#039;t you think? Money leaks out of the country in billions through immigrants sending money home - to all points of the compass. There is often a shortage of favorite coins and notes too. People collect them so money is hoarded under mattresses and in piggy-banks everywhere.

Global trade in banking is a law unto itself and the traders - to me - seem to do whatever they like. Next move for the banks is to insist we all keep at least 锟?,500 in our accounts unspent at all times.|||The Federal Reserve is the only institution that can write checks without having any money. When it does this, it creates more money in the economy.

This is because most banks are required to have an account with the Federal Reserve (%26quot;reserves%26quot;). When the Fed writes a check to buy anything, the bank receiving the check automatically gets an increase in its reserve account with the Fed. The bank can then use this money to make a new loan.

Normally, when the Fed wants to increase the supply of money, it buys US government securities on the open market and pays for them with a check. This check then is added to the supply of money. Not surprisingly, this is called %26quot;open market operations.%26quot;

When the Fed wants to decrease the supply of money, it sells something, normally, US government securities that it holds. The check the Fed receives in payment is then deducted from the reserve account of a commercial bank. This reduces the amount of money that the bank can lend..|||this is basically how money is %26quot;created%26quot;. If you put 1 dollar in the bank you are being paid by the bank interest. Some say they have all money in a checking account that does not pay interest but remember, the bank is still paying you by providing a place for you to keep your money so you don%26#039;t need to carry it all with you all the time. they are incurring the cost. So in a sense the bank leases the dollar from you. With that dollar they must keep some on hand say 10%, in case you want it back, the other 90% or $0.90 they loan out. They get paid in interest for that loan. That $0.90 covers the costs of the loan. That loan is used to buy something. No one borrows money to hold it. So that $0.90 buys something so that someone (a combination of workers and owners of the good that was bought) now has $0.90 in their pocket. They in turn go to the bank and deposit it. Well the bank now has $0.90 as a deposit what do they do? Well they hold some of it in reserve say 10% again and loan out the rest ... this continues. All of this money and activity was %26quot;created%26quot; from your intial $1.

the reserve is set by law the Fed reserve sets it.|||In Canada, the bank of Canada prints %26amp; distributes the money.|||I think the answer, at least in part, is found at the article found at the link, written in this 2006 article by Lyndon LaRouche, Jr.

Even though Mr. LaRouche%26#039;s political viewpoints are not mainstream, his definition of how the financial system works, as found toward the end of the article, are concise and complete.

May I suggest you check into the novel style biography of Alexander Hamilton, founder of the Treasury? The link to a site regarding this text is also provided. It is an excellent treatise, and the novel style is very unique. It brings that time in history to life.